Tenix: out of its depth and all at sea

Richard Baker and Nick McKenzie

IT'S after midnight in Manila. A black limousine idles outside the Prince Tower apartment building. The driver lowers his window and asks the security guard to rouse the resident of room 909. Cyril Peel, an Australian businessman, is asleep when the intercom buzzes. Unhappy about being woken, he tells the guard to say he's not home.

''It is vice-President Estrada and your friend Mr Reyes, sir. They want to see you.''

It was early 1998 and Peel's friend, Jun Reyes, was the campaign manager for Joseph Estrada in the coming general election, in which the movie star-turned-politician was the overwhelming presidential favourite. The politician and his adviser had come to talk business.

Peel, a former professional Sydney rugby player who became a licensed arms trader in Asia, had just won a major contract for Australia's biggest defence company, Tenix, to supply two search-and-rescue vessels to the Philippines.

He knew the score and got dressed to join the party-loving Estrada for a session at an exclusive city bar.

Advertisement

Peel had recently warned Tenix management in Australia that dealing with Estrada and his cronies would be a vastly different matter to the formal negotiations that had taken place with the administration of Fidel Ramos, who was nearing the end of his constitutional term as president.

But Tenix had other ideas and sacked Peel as its agent in September 1998, just weeks after the final contracts for the two search-and-rescue vessels had been signed.

The company, which was then owned by Sydney's wealthy and influential Salteri family, decided that its own executives could negotiate future deals with the Estrada administration.

Fourteen years later, the ramifications of Tenix's dealings with Estrada and his men are only beginning to be felt. In March, The Age revealed that the Australian Federal Police was investigating whether Tenix's dealings in the Philippines, and elsewhere in Asia, included illegal bribes and donations to politicians and officials.

As police dig into Tenix's affairs, the massive taxpayer loans that underpinned its Philippines deals and its close relationships with respective federal Labor and Coalition governments are being closely scrutinised.

The billions of dollars Tenix earned from Australian defence contracts and its reputation as a generous employer of retired politicians, diplomats and naval officers are also being examined. The case has the potential to join the Reserve Bank bribery affair as one of the biggest corporate scandals Australia has seen. Today, Peel, who delivered Tenix its first 1998 Philippines contract before being sacked by the company, speaks publicly for the first time about how that deal was made and why Tenix's subsequent arrangements in the Philippines turned sour.

''I had warned the Salteris and their senior executives on many occasions, in person and in writing, that with Estrada becoming president things would change, the old Marcos days of kickbacks would return,'' Peel told The Saturday Age (Peel is in a legal dispute with Tenix).

''I knew Estrada well. I was close to the people at the forefront of his political campaign. I knew about the kickbacks they had received from other parties to push through contracts once Estrada took over from Ramos.''

Peel was not the only one worried about corruption in the Philippines in 1998. Australia's Foreign Affairs Department issued a report that year warning: ''The nature of corruption makes it almost impossible to determine its level and extent. But anecdotal evidence suggests that bribery does occur, principally to obtain major government projects.

''Pressure to contribute to political campaigns can be strong but foreign companies can politely reject these requests by citing the constitutional prohibition on foreigners becoming involved in Philippine politics.''

But for corruption to occur, there first needs to be a deal. In Tenix's case, the origins of its Philippines deals can be traced to the world's worst peace-time maritime disaster.

On December 20, 1987, the horribly overcrowded Dona Paz ferry was making its way through the waters of the Tablas Strait towards Manila when it collided with the MV Vector oil tanker, killing 4375 people.

The disaster exposed the woeful state of the Philippines Coast Guard. A year later, a Philippines government inquiry recommended that a new fleet of search-and-rescue vessels be acquired.

Peel, who at that time was licensed by the Philippines government to supply weapons and ordnance, was alerted by one of his Manila contacts to just how serious the country was about improving its coast guard. Peel met the senior bureaucrat in charge of the government's response to the ferry disaster and came back to Australia armed with the tender specifications for the search-and-rescue project.

In the early 1990s, he was signed as the exclusive Manila representative for Australia's biggest defence company, Transfield, which became Tenix. Over several years, Peel and Tenix worked with people at the highest levels of government in Australia and the Philippines to make something happen.

In Manila, Peel and the Australian embassy lobbied the Philippines government to remove the coast guard from naval control and place it within the more politically benign transport department.

This was done so Peel and Tenix could persuade the Australian government that it could legally provide $20 million in foreign aid and guarantee further loans to the Philippines to help pay for the search-and-rescue vessels. Australian law precludes aid money being used for military purposes. Despite the sensitive political negotiations, Australia's interest in the Philippines Coast Guard project barely received any public or media attention until the election of John Howard's Coalition government in 1996.

Soon after taking office, the new government announced it would scrap the Development Import Finance Facility aid program that was to fund the Philippines' purchase of Tenix's vessels and several other projects in the region.

It was a decision that almost cost foreign minister Alexander Downer his job and Cyril Peel his deal.

The outcry from the Philippines and elsewhere in Asia was immense, putting Downer - who had assured Parliament that no other Asian countries had complained about the axing of the aid program, when several actually had - on the back foot. The Asian governments felt double-crossed by Australia. Important nation-building projects in China, Indonesia and the Philippines had been placed in jeopardy.

So with the deal on the rocks, Peel arranged for Paul Salteri, Tenix's owner and managing director, to visit President Ramos in August 1996 and impress on him the Australian company's commitment to the coast guard project.

As Salteri, Peel and the former diplomat-turned-Tenix consultant Richard Woolcott sat in the lobby at Manila's Shangri-la Hotel, Salteri produced a document from Australia's Foreign Affairs Department that showed the Philippines had put the search-and-rescue boats towards the bottom of its Australian foreign aid wish list.

Peel knew the foreign affairs document to be wrong. He had seen several official Filipino documents listing the Tenix vessels as the top foreign aid priority. He took Salteri's document and called Ramos' office to request an urgent meeting.

Peel told The Saturday Age that as he sat in Ramos' office, the president telephoned his foreign affairs minister, Domingo Siazon, and with his pen drew arrows to restore the search-and-rescue vessels to number one priority and signed the document.

Satisfied, Peel returned to the Shangri-la Hotel and showed Salteri and Woolcott Ramos' changes. According to Peel, Woolcott called his son Peter, who was stationed at the Australian embassy in Manila, and asked him to join them.

Peel says the younger Woolcott read the Ramos document and suggested it would cause a stir in Canberra. Sure enough, within two days, the Australian government assured Ramos that the promised financial aid would be delivered.

It took another two years for the final contracts between Tenix and the Philippines to be signed. But by mid-1998, the deal was done. Tenix would deliver two 56-metre search-and-rescue vessels to the Philippines Coast Guard, and the Australian government would fund most of the project through a grant and a low-interest loan.

With the contract signed, Peel told Tenix management he was taking a break to have more medical treatment for wounds he suffered in a stabbing in Manila in late 1994 in a kidnapping attempt.

But just as Peel was to go on leave, a financial dispute emerged over fees that he claimed Tenix owed him for winning the search-and-rescue boat contract and having the company shortlisted for a navy modernisation project that could have meant 47 boats to build. Peel was told by fax from a Tenix executive that his time as the company's agent was over. By sacking Peel, Tenix was now without a guide who knew the dangers of doing business in Manila.

Nevertheless, Tenix was eager to sign a contract for a second order of coast guard vessels with the new Estrada administration. It is this second deal for more boats that has the potential to cost Tenix and Australia dearly - with the threat of criminal charges and loss of reputation.

ON MONDAYS, at Tenix's Sydney headquarters, the Salteris would often prepare an Italian meal for loyal staff.

''You would sit down and Rob and Paul would serve the pasta, the salad and bread,'' recalls a former executive who spoke on the condition of anonymity.

''Tenix at the top was like a typical Italian family company. The Salteris had their trusted inner circle, and sometimes it paid not to ask any questions about what was going on.''

Former Australian officials aware of Tenix's dealings in the Philippines, and former company executives, say that Peel's forced departure put the company out of its depth in Manila and had cost them millions in lost opportunities.

As revealed today by The Saturday Age, one former Tenix executive claims to have had a gun pulled on him by a senior Philippine Coast Guard officer, who demanded a $1 million bribe. The executive says this caused him to leave Tenix.

In 2000, Tenix - minus Peel - and the Estrada administration signed a contract for the delivery of another six search and rescue vessels, with a further 10 ships to come in a third order.

The Australian government again strongly supported the deal, guaranteeing a $109 million ANZ loan to the Philippines.

Another variation of the same contract was signed in early 2001. According to sources aware of the deal, signing the second vessel contract with Estrada's men caused Tenix fresh problems.

A former Tenix executive says the company was under pressure to compensate certain Filipino politicians in return for them not making a fuss about the government's decision to buy the boats from Australia instead of building them locally. ''The second lot of ships is where the rot set in,'' the former executive says.

The impeachment of Estrada in 2001 on major corruption charges did not make things any easier for Tenix. It simply introduced a fresh bunch of people who knew of the dealings and wanted a slice of the action.

When Gloria Arroyo replaced Estrada as president, it was made clear to Tenix that it should deal with someone from Arroyo's inner sanctum. A smart, attractive lawyer called Romela Bengzon was soon appointed president of Tenix's Philippine subsidiary. Bengzon was one of Arroyo's closest aides and would go on to be appointed international trade ambassador and a commissioner advising the government on constitutional change.

Bengzon was well known to the Australian government officials in Manila, where she was a member of the Australian New Zealand Philippine Chamber of Commerce.

She is believed to have received millions of dollars from Tenix. Police are investigating whether some of this money was used to pay bribes or make donations to local politicians.

Also being scrutinised is the claim by prominent Filipino congressmen Roilo Golez that he declined an offer of several hundred thousand dollars from Tenix to help bankroll his 2004 election campaign.

Declassified Australian diplomatic cables released to The Age this week show that in 2005 the Australian embassy was told by a Philippines cabinet minister that the 2000-01 Tenix contract had actually never received congressional budgetary approval, with a prominent Filipino senator describing it as an ''illegal deal''.

Although contracts had been signed by the Philippines finance department, the Australian government, Tenix and ANZ in 2000 and 2001, the news that the deal had not received the appropriate approvals from the Philippines Congress should have raised eyebrows in Canberra.

Instead, Tenix was rewarded with a 2005 special award by Austrade to mark its export success to countries, including the Philippines. About this time the Philippines senate suspended repayments to Tenix, citing the discovery that the contracts had not received budgetary approval.

The Philippines eventually began repayments and the ANZ loan is due to be repaid soon. However, questions remain over how Tenix and the Australian government persuaded the Philippines to restart the loan repayment.

The Saturday Age spoke to Bengzon earlier this year. She said she was aware of the police investigation but could not comment because of her role as a legal adviser to Tenix.

But she did offer a piece of advice: ''Be careful, you could tread on some toes - create a diplomatic incident.''

For Cyril Peel, the man who put Tenix in a winning position in the first place, the affair makes him wonder what could have been.

''The loser here was Australia, Australian industry and the Australian taxpayer. Tenix lost control trying to do deals with people they did not know. When you put blood in the water, the sharks will appear.''

Earlier this year a spokesman for the Salteris said an internal investigation had found no evidence of impropriety in its dealings in the Philippines or elsewhere. The Salteris sold Tenix's defence business to Britain's giant BAE in 2008. BAE referred Tenix's previous deals to the federal police in 2009 after coming across information that caused its management concern. The Salteris declined interview requests and did not answer written questions.

Humble start

AUSTRALIA's biggest defence company Tenix began with a meeting at a Rome airport 61 years ago. Two young men, Carlo Salteri and Franco Belgiorno-Nettis, were part of a crew of Italian engineers headed to Sydney to work on an electrical transmission line.

When that job was completed, Salteri and Belgiorno-Nettis decided to stay. The business they launched grew into a massive engineering empire. It was a genuine Australian success story.

In the 1990s, relations between the younger members of the two families began to sour. The business, named Transfield, that began in the 1950s was split in 1997, with the Salteris taking control of the defence arm - renaming it Tenix - and the Belgiorno-Nettis family keeping the Transfield name and much of the engineering operations. Transfield Services was listed on the Australian Stock Exchange in 2001. But Carlo Salteri and his sons, Paul and Robert, chose not to float Tenix.

Instead they continued to expand by winning defence and shipbuilding contracts at home and abroad and by venturing into other sectors such as mining, power and water. The company was regarded as one of Australia's most important and influential.

In 2007, Tenix was generating $1 billion a year and employed more than 4000 people here and in New Zealand. A year later, the Salteris sold the defence business to British arms giant BAE Systems for $775 million.